The Long-Term Impact of Anti-Poverty Policies

Since the enactment of the Economic Opportunity Act of 1964, the federal government of the United States has taken a hands-on approach to alleviating poverty. From the minimum wage to food stamps, existing federal policies provide low-income families numerous incentives with varying results. In a groundbreaking new study, David Neumark, Brian Asquith and Brittany Bass find compelling evidence that certain policies, especially the Earned Income Tax Credit (EITC), alleviate poverty and bolster financial stability. Others—such as welfare benefits—prove less successful. The research suggests that future anti-poverty policies will be most successful if they directly incentivize labor force participation.

Most anti-poverty policy research looks at the impact of individual policies on economic outcomes. Yet, these findings can be misleading. Many families benefit from multiple forms of support concurrently, so any study that looks at the impact of a policy in isolation is likely to overstate its effects. In addition, long-term data on individual employment and income is limited and difficult to obtain, so few studies attempt to measure the impacts of poverty alleviation policy on outcomes years down the line. Neumark’s paper, which attempts to estimate the long-term impact of multiple anti-poverty policies, is the first of its kind.

Neumark’s study examines the impact of three nationwide anti-poverty policies—the Earned Income Tax Credit (EITC), Temporary Assistance for Needy Families (TANF) and minimum wages—on poverty, employment, earnings and public assistance at the census tract level. Census tracts with the highest rates of poverty in 1970 are classified as “disadvantaged.” The impact of anti-poverty legislation on these areas is measured over the next 40 years in ten-year intervals. In order to compare across census tracts, Neumark controls for a slew of variables that might otherwise bias the results, including differences in economic opportunity across tracts and long-term changes in the structure of the aggregate economy.

The researchers find that generous welfare benefits—higher maximum payments and longer eligibility periods—are correlated with statistically significant increases in public assistance utilization and poverty rates. This trend persists when the researchers redefine “disadvantage” as the census tracts that have the highest rates of single motherhood, Black residents, or lowest rates of high school graduation. While minimum wages increase employment immediately following their implementation, the longer-run effects are unclear. The author’s framework provides evidence that a 1% increase in the minimum wage decreases the share of census tract residents on public assistance by 0.4%, but the trend reverses when the researchers change the baseline year for defining disadvantage.

In contrast to the adverse and unclear effects of welfare and minimum wages, the authors find substantial evidence that the EITC increases employment in the long run while also decreasing poverty and public assistance reliance. While the effects are small—a 1% increase in the EITC benefit available at a given income level is associated with a 0.09% decrease in public assistance—the results are statistically significant and persistent. People have to work in order to be eligible for the EITC, and the EITC is not factored into calculations of poverty and public assistance. The authors argue that this work requirement, in combination with their finding of long-term decreases in poverty, suggests that the EITC creates behavioral change: people join the workforce in order to become eligible for the EITC and their labor force participation increases their income and decreases public assistance reliance in the long run.

The researchers note limitations to their findings. The sample of census tracts available in 1970 was mostly urban, so the authors’ results may not be generalizable to rural settings. In addition, changes in poverty outcomes in census tracts may be difficult to tie to changes for individuals and households. Some of the estimated effects of anti-poverty policies are likely attributable to in-migration that occurs as previously most-disadvantaged tracts begin to improve. Nevertheless, the researchers present compelling evidence that policies designed to incentivize labor force participation are more effective than welfare or minimum wages at decreasing long-run poverty and public assistance reliance.

According to the Census Bureau, over 38 million people were living in poverty in the United States in 2018. Given that current poverty alleviation policies have largely been ineffective, researchers must look to data for insight. As Neumark’s research shows, policies that require workforce participation are more likely to decrease poverty and welfare reliance in the long-term compared to other supportive programs without such requirements. The federal government should consider this evidence as it designs and improves poverty alleviation policies. We may be most successful at reducing poverty in the long run by prioritizing policies that create incentives for labor market participation and empower families to become self-reliant.

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Neumark, David, Brian Asquith, and Brittany Bass. “Longer-Run Effects of Anti-Poverty Policies on Disadvantaged Neighborhoods.” Contemporary Economic Policy 38, no. 3 (July 2020): 409–434. https://doi.org/10.1111/coep.12445.